Production-Linked Incentive (PLI)
Scheme
Context
Govt believes that the PLI scheme has been successful in enhancing the manufacturing sector
Former RBI Governor Raghuram Rajan expressed doubts about the effectiveness of India's PLI scheme
PLI Scheme
Eligible companies receive financial incentives based on their incremental production or sales.
Objectives: Boost competitiveness, attract investment, create employment, and enhance exports.
Introduced by the Indian government in 2020 to promote domestic manufacturing in specific sectors.
Significance of subsidizing
domestic sectors:
Financial assistance helps invest in R&D, technology, and infrastructure.
Supports import substitution and strengthens domestic manufacturing.
Subsidies stimulate job creation and reduce unemployment rates.
Subsidies encourage research and development.
Subsidies support growth, competitiveness, and competitive pricing.
Challenges of effective
implementation of PLI
Ensuring adequate funding while balancing the financial burden.
Ensuring beneficiary companies meet prescribed benchmarks.
Timely disbursal of incentives and monitoring compliance by beneficiary companies.
Companies may become reliant on subsidies and neglect competitiveness.
Identifying the right sectors and companies for incentives
International best practice:
Vietnam Model
Focus on vocational education and training sessions to equip the workforce.
Plethora of free trade agreements (FTAs)
Relatively large, well-educated labor force
Tax incentives
Low-cost manufacturer with competitive labor costs
Way forward
Addressing the skill gap through improved education
Promoting R&D and collaboration
Enhancing access to affordable finance, especially for SMEs
Simplifying regulatory frameworks and reducing red tape
Adequate and modern infrastructure is essential
Strengthening supply chain integration for efficiency